NZ Dollar Outlook: Kiwi to top 85 cts as greenback unloved

Dec. 17 (BusinessDesk) – The
New Zealand dollar looks set to breach 85 US cents for the
first time in 15 months provided third-quarter growth
figures don’t disappoint and Washington remains stalled on
fiscal cliff talks.

The kiwi dollar recently traded at
84.60 US cents from 84.56 cents in New York on Friday. The
trade-weighted index rose to 75.45 from 75.31.

The local
currency may trade in a range of 83.50 US cents to 85.70
cents this week, according to a BusinessDesk survey. The
kiwi dollar may ease back from its highs toward the end of
the week and is looking somewhat “stretched” versus the
yen after surging to a four-year high today on the landslide
victory of Japan's Liberal Democratic Party, whose aims
including weakening the yen.

Politicians in Washington are
running out of time to find agreement on averting the fiscal
cliff, which kicks in on Jan. 1 with some US$600 billion of
tax hikes and spending cuts that could push the world’s
biggest economy into recession in 2013. Late on Saturday, a
source told Reuters that President Barack Obama was unmoved
by a Friday proposal from US House Speaker John Boehner.

It is a data-heavy week on the home front, with third
quarter balance of payments figures due on Wednesday and
gross domestic product on Thursday. Gross domestic product
slowed to a 0.5 percent in the three months ended Sept. 30,
according to a Reuters survey of nine economists, after a
0.6 percent expansion in the second quarter. Forecasts
ranged from zero growth of 0.7 percent, suggesting there’s
a risk of a weaker outcome that would weigh on the
kiwi.

“Overall I think we will see the kiwi run out of
puff after pushing up to the 85 cents mark,” said Dan
Bell, currency strategist at HiFX. “If the fiscal cliff
gets resolved we could see quite a significant correction.
The US economic growth outlook is still a lot better than
for a lot of other countries.”

The kiwi dollar didn’t
move much after the Westpac McDermott Miller Consumer
Confidence Index rose 8.6 points to 111.1 in the December
quarter, the highest level since September last year, while
the Performance of Services Index for November came in at
54.1, down from the previous strong month though still
indicating expansion.

The government releases its half
year economic and fiscal update tomorrow at 12:30pm and
economists are looking for an indication on whether it still
expects to return to budget surplus in 2015, given the
economy’s recovery has been at a slower pace, with tax
income down.

The balance of payments for the third quarter
is out on Wednesday, which is expected to show the current
account deficit widened to $4.83 billion in the three months
ended Sept. 30 from $1.8 billion in the second quarter,
according to a Reuters survey. The annual deficit narrowed
to $9.83 billion, or 4.8 percent of GDP, from $10.1 billion,
or 4.9 percent.

Along with New Zealand GDP on Thursday,
traders across Asia will also be awaiting the Bank of
Japan’s monetary policy decision, which is expected to
confirm interest rates near zero.

The New Zealand dollar
jumped as high as 71.46 yen today, the highest since
September 2008, from 70.57 yen in New York on Friday. It has
since eased back to 71 yen.

The LDP and junior partner New
Komeito won at least 320 of the 480 seats in the lower house
in Sunday’s election, a two-third majority, Nikkei
reported. That gives it enough power to pass laws even in
the face of opposition in the upper house.

Tim Kelleher,
head of institutional FX sales at ASB Institutional, said
there is “strong resistance” at 71.50 yen to 72 yen and
traders would also be taking profits on US dollar-yen as
Japanese exporters take on cover.

“The forecast was
always for a change of government,” he said.

Friday
rounds out the week with New Zealand tourist arrivals and
credit card billings for November.

Peter Cavanaugh, an
adviser at Bancorp Treasury Services, said trading volumes
are reducing in the run-up to the Christmas-New Year
break.

“Liquidity is very light so the kiwi is
vulnerable to being pushed around by the smallest of
trades,” he
said.

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